When an expatriate moves from one geographic location to another, the change in cost of living they experience is relative to the change in the purchasing power of their salary. The basic principle is that a move to a higher cost of living city should be accompanied by a proportionately higher salary in order to maintain the same amount of purchasing power and vice versa. If an expatriate is fortunate enough to move to a lower cost of living city without a decrease in their salary, their purchasing power increases proportionately to the decrease in the cost of living.



India still offers opportunity for expatriates moving to India to experience an increase in their purchasing power. The major cities of India offer a relatively low cost of living for expatriates according to www.xpatulator.com. Bangalore has an overall cost of living index (comprised of the prices for defined quantities of the same goods and services) of 64.6 (New York=100) and is the 38th cheapest place in the world for expatriates to live, out of our 276 international locations. In comparison Hyderabad has an index of 68.8 and is ranked 55th, Calcutta has an index of 69.3, and is ranked 56th, Chennai has an index of 70.7 and is ranked 65th,New Delhi has an index of 71.4 and is ranked 70th, while Mumbai has an index of 76 and ranked the 105th cheapest place in the world for expatriates to live.

Cost of living is however only half the story. In determining how much to pay an expatriate the relative hardship they are likely to experience must also be taken into consideration. An expatriate moving to a country with little hardship is unlikely to need much incentive. However in order to encourage an expatriate to move to a relatively high hardship country, compared to what they are used to, requires an incentive in the form of compensation for the hardship they are likely to experience. Hardship is one of the main differentiators between expatriate salary levels and local salary market levels. As a rule of thumb an expatriate will always cost an employer more than a local hire.

In terms of the relative hardship expatriates are likely to experience moving to India, assessed in global terms, India is currently ranked as an extreme hardship location, which typically commands a 40% salary premium for hardship. Hardship is relative however; in the same way that cost of living is relative. An expatriate moving from a country similar to India would experience less hardship than someone moving from a country that is completely different.

The global factors which are used to determine a relative hardship ranking world-wide include differences in:

• Economic conditions such as poverty and service provision.

• Political conditions such as tolerance of diverse views, life style and conformity to cultural norms.

• Religious conditions such as religious prevalence, and tolerance of other religions.

• Public Service conditions such as provision, administration and accessibility to water, electricity, sanitation, work permits etc.

• Climatic conditions such as extremely hot or cold weather.

• Safety conditions such as personal security and the threat of public violence.

• Health conditions such as health standards and risk of viral outbreaks.

• Education conditions such as state education standards, expenses, mother-tongue teaching, and school proximity to home.

• Transportation conditions such as public transport availability, safety and efficiency.

Expatriate Salary Calculation

So what do cost of living and hardship differences mean in practical terms? Let's consider an expatriate moving from New York to Bangalore. In terms of hardship they would qualify for a 30% hardship allowance (40% for Bangalore less 10% for New York). The overall cost of living in Bangalore is 35.4% cheaper than New York given the Bangalore cost of living index of 64.6 versus New York's 100. A salary of $100,000 in New York adjusted for the negative difference in cost of living and the positive hardship premium would equate to 4,086,450 (INR).

Salary in New York X Cost of living difference X Hardship Premium X Exchange Rate = Salary in India

$100,000 X 0.646 X 1.30 X 48.6598 = 4,086,450 (INR)

If however the salary was not adjusted downwards for the lower cost of living (a common practice amongst multinational organisations), and the hardship allowance was added, the Bangalore salary would equate to 6,325,774 (INR) which would mean the expatriate would be gaining from a 35.4% cheaper cost of living and a 30% hardship allowance, and as a result could afford a far higher standard of living in India. As recently as early last year, this sort of package would have been realistic. However in today's depressed global economy it is less likely.

In assessing how much to pay an Expatriate in India, it is important to take into account the relative difference in the cost of living as well as the relative hardship.